Paying for Staying: Managerial Contracts and the Retention Motive
36 Pages Posted: 2 Apr 2012
Date Written: March 20, 2012
Talented managers may leave the firm in order to work elsewhere. Focusing on the portability of managers-resources, we develop a model in which managerial compensation is designed to prevent inefficient departure. The model rationalizes the widespread use of flat salaries in combination with performance-vesting stock options and is consistent with observed differences in compensation contracts across individuals, firms, industries, and countries.
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